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Draft Finance Bill 2017 - other measures

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Currently enquiries into a tax year or accounting period are concluded once all disputed issues can be resolved. Following Royal Assent to the 2017 Finance Bill HMRC will be able to issue a Partial Closure Notice (PCN) once any discrete issue can be resolved, although other issues may remain under enquiry. Similarly taxpayers will be able to apply to a Tribunal for a PCN. This change will apply to existing as well as any new tax enquiries. A taxpayer can appeal a PCN. Where a PCN is not appealed the main impact for taxpayers will be the accelerated finalisation of the tax liability on the discrete issue plus any associated interest charges and potential penalties.

Partnership taxation: proposal to clarify tax treatment

Following recent consultation, it has been confirmed that legislation will be included in Finance Bill 2017. Draft legislation will not however be published for consultation until early 2017.

Northern Ireland (NI) Corporation Tax change

Several minor changes are to be made to the existing Corporation Tax (Northern Ireland) Act 2015 to allow more small and medium sized companies (SMEs) the potential to qualify for the lower corporation tax rate than previously. Broadly, under the existing legislation, SMEs would need to meet a ‘Northern Ireland employer’ test which requires that 75% or more of employees working time in the UK, and their related expenses, needs to be spent in NI. Concerns were raised by smaller NI businesses that some companies which spent a lot of time in the Great Britain market may not qualify under this test. In response, the Government is now proposing that such SMEs trading in NI, but which fail to meet the ‘NI employer’ test, can make an optional election (the ‘SME election’) to effectively apply the ‘large companies’ rules for each accounting period (i.e. for the lower NI rate to apply to profits attributable to their ‘Northern Ireland Regional Establishment’ (NIRE)). This annual election must be made within 12 months of the end of the relevant accounting period.

To protect against possible abuse of this relaxation, the Government are proposing to introduce the concept of a ‘disqualified close company’. Such companies will be prevented from applying the SME election if the company is ‘close’ in the period, the company has a NIRE as a result of tax avoidance arrangements, and 50% or more of the company’s working time in the UK, or related expenses, is “spent by participators…otherwise than in Northern Ireland”. The main aim here appears to be to ensure that the key entrepreneurs in the business are spending the majority of their time working in NI. Similar clauses are to be introduced for partnerships (called ‘disqualified firms’).

While SMEs opting to apply the ‘large companies’ rules should benefit from the reduced tax rate, it will be necessary to weigh up the increased administrative cost and burden in complying with the more complex rules for identification of NIRE profits.

Commencement of the NI tax regime will apply to trading profits arising on or after 1 April 2018, subject to the NI Executive demonstrating its finances are on a sustainable footing.

Museums and galleries exhibition tax relief

Draft legislation has been published for a new tax relief for exhibitions of scientific, historic, artistic or cultural interest. This will largely apply to museums and galleries, but can also apply to libraries, archives, historic homes, universities, or similar institutions hosting an exhibition. Claimant companies must be either a charity, or wholly owned by a charity or local authority. Although the company responsible for the exhibition needs to be within the charge to corporation tax, charitable companies still qualify even if they do not actually pay corporation tax. The relief is very generous, offering 16-20p in the £ for the costs of producing and de-installing exhibitions, and can also be claimed by venues who are hosting an exhibition whilst on tour. Although the relief will only apply from 1 April 2017, it is worth considering now to ensure that planned exhibitions will meet the qualifying criteria and that systems are in place to track the relevant costs.

Hidden Economy

Following earlier consultation, Finance Bill 2017 will include legislation to extend HMRC’s data-gathering powers to Money Service Businesses (MSBs) which provide money transfer, cheque cashing and currency exchange services. The draft legislation published would add MSBs as a new category of data-holder and the detail of what data can be required will be included in later regulations. The consultation response document published alongside the draft legislation notes the fact that HMRC intend to set a standardised format for data-reporting which is intended to reduce the possibility for error and reduce the administrative burden for MSBs in receipt of a notice.

Response documents for other proposals around the hidden economy, on introducing a principle of conditionality and tougher sanctions for repeat offenders, will be published at Budget 2017.